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Fund Expenses Hit 20-Year Low

According to new research from the ICI, the expense ratios for equity, bond, and hybrid funds reached 20-year lows in 2015.  The research shows that an increase in the assets held in index funds contributed to a decline in equity expense ratios by 2 basis points, to an average of 68 basis points, in 2015.  The decline marked the sixth straight year of falling equity fund expense ratios.  Bond funds experienced a slightly steeper decline in expense ratios, which the ICI attributes to the decline in assets in high-yield funds.  Hybrid funds -- which invest in both equities and bonds -- also experienced declines in expenses, though not as much as either stock or bond funds.  The ICI notes that alternative strategy funds, which tend to have higher expense ratios, account for 8% of hybrid funds.  Finally, money market fund expenses held steady at 2014 levels.  The research notes that fee waivers for money market funds continued in 2015 – amounting to $5.5 billion.

The research also notes the concentration in assets in low-cost funds.  For example, the data shows that 57% of assets in actively managed equity funds were held in the 10% of funds with the lowest expense ratios.  The concentration also holds true for index funds, with 69% of assets in equity index funds in the 10% of funds with the lowest expense ratios.

The ICI uses asset-weighted averages to summarize the expenses paid by shareholders because simple averages would give too much weight to the expense ratios of funds with few assets.

 
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